Shareholder activism and changes in audit committee composition

57 Pages Posted: 9 Sep 2018 Last revised: 9 Jun 2020

See all articles by Tom Adams

Tom Adams

La Salle University

Thaddeus Neururer

University of Akron - The George W. Daverio School of Accountancy

Date Written: February 27, 2020

Abstract

We examine whether governance related shareholder activism is associated with changes in audit committee composition. Audit committees are the “ultimate monitors” of firms’ financial reporting processes. The SEC is interested in whether audit committees have financial experts and prior research has documented benefits associated with accounting-specific financial expertise. Governance activism expresses investors’ dissatisfaction with corporate governance; audit committees are an important governance mechanism. Therefore, we predict that governance activism will affect audit committee composition. We document consistent associations between both general and accounting related governance activism and increases in audit committee accounting expertise. These associations are strongest when a firm concurrently announces a restatement, experiences an internal control failure, or has low pre-activism expertise. Further, in the post period, there is a considerable drop in activism for firms that have added accounting experts. Our study documents an important determinant of audit committee composition.

Keywords: Shareholder Activism, Audit Committee, Corporate Governance

JEL Classification: G30, M41

Suggested Citation

Adams, Thomas and Neururer, Thaddeus, Shareholder activism and changes in audit committee composition (February 27, 2020). University of Connecticut School of Business Research Paper No. 18-25, Available at SSRN: https://ssrn.com/abstract=3239994 or http://dx.doi.org/10.2139/ssrn.3239994

Thomas Adams (Contact Author)

La Salle University ( email )

United States
2159511081 (Phone)

Thaddeus Neururer

University of Akron - The George W. Daverio School of Accountancy ( email )

United States

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